My plan for retirement is to spend our entire nest egg over the next several decades and then die promptly at 100. Well, almost the entire nest egg. We’ll still have our house.
It’s recently occurred to me that we won’t actually need our house anymore when we’re dead. Many people are fine with this approach because they would like to leave something to their kids when they are gone. Chances are though, by the time you die, your kids won’t really be kids anymore. They will probably have their own homes and children and retirement funds. In fact, they will probably be making plans to leave their kids something when they die. So kids or no kids, why die with all that equity tied up in a house?
By most accounts, Americans are not saving enough for retirement. Maybe it’s time to think about how your home can help you meet your retirement goals instead of worrying so much about what you’re going to leave to your kids. You’ve raised them, sent them to college, and probably even helped them out from time to time, perhaps at the expense of your own retirement security.
If you are retiring at the traditional age, you’ll want retirement assets equal to about 25 times your annual living expenses that aren’t already covered by pensions or Social Security income. On top of that, you may own a home. The equity in our home holds another 17 times our annual expense needs. That’s an awful lot of money to have tied up in an asset that I can’t make withdrawals from. When I die, I will still have 17 years worth of living expenses tied up in my house. Here is how your house might help fund your retirement while you’re still alive.
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Rent instead of own. I’m thinking that a two-story, four-bedroom house with a large yard may contain a few more toilets than I care to scrub when I’m in my 80’s. If I sold the house, the amount I would save on property taxes, insurance, maintenance, and utilities would pay the rent on a 2-bedroom, scooter-accessible condo with no lawn to mow. Plus, I would walk away with the equity in my home, which would carry me through more years than I’m even expecting to live. It looks like I can splurge on a condo with a view.
Downsize. Maybe you’re not psychologically ready to become a renter after all those years of painting the walls any color you choose. You still might be able to take a hefty chunk of equity off the table by downsizing to that same condo, but as an owner instead of a renter. You’ll still die with a house you don’t need, but it won’t have used up quite as many retirement dollars as living in a big house would have.
Assume some debt. The other alternative is to die owing the bank some money. Taking out a reverse mortgage won’t allow you to pocket as much cash as selling the house outright, but certainly more than leaving it all in there. That’s money you get to use while you are alive and pay back when you are dead. Now, I’m well aware of the benefits of owning your home debt-free, I’m just not sure I’ll care about those when I’m dead.
Sydney Lagier is a former certified public accountant. Since retiring in 2008 at the age of 44, she has been writing about the transition from productive member of society to gal of leisure at her blog, Retirement: A Full-Time Job.